Debentures are an important instrument for raising long-term debt capital. A debenture can be defined as an acknowledgement that the company has borrowed a certain amount of money which it promises to repay at a future date. Debenture holders are the creditors of the company and are paid fixed rate of interest at specified interval.Merits:
- Investors who want fixed income at low risk prefer debentures.
- Debenture holders do not carry voting rights. Therefore, they do not affect the control of equity shareholders on management.
- The issue of debenture reduces the borrowing capacity of the business.
- Being fixed charge funds, they are a burden on the earnings of the company.